Culled—Proshare
August 2, 2017/FBNQuest Research
Event: International Breweries reports Q1 2018 (end-Jun) results
Implications: Neutral reaction expected by the market
Positives: Sales grew by 37% y/y; PAT of N1.4bn compares with a post-tax loss of –N1.7bn recorded in Q1 2017
Negatives: Gross margin contracted by -411bps y/y; Opex grew 15% y/y
Late yesterday, the NSE published International Breweries’ Q1 2018 (end-Jun) results which showed that sales of N9.4bn grew by 37% y/y. PBT and PAT of N1.5bn and N1.4bn compare with pre and post-tax losses of –N1.3bn and –N1.7bn recorded in Q1 2017 respectively.
International Breweries posted an fx translation loss of –N2.7bn in Q1 2017. Stripping out this loss, Q1 2018 PBT and PAT advanced by 6% y/y and 31% y/y respectively.
The strong sales growth and a -73% y/y decline in net finance costs more than offset a -411bp y/y gross margin contraction to 45.5% and a 15% y/y rise in operating expenses, leading to the strong bottom line.
On a sequential basis, sales were down slightly, by -5% q/q, which we attribute to seasonality. The end-Jun quarter is usually one of the weaker quarters; PBT and PAT were down -37% q/q and -8% q/q.
Although gross margin expanded by 253bps q/q, this was not strong enough to offset the q/q sales decline, and 20% q/q and 33% q/q increases in operating expenses and net finance costs respectively, and led to the relatively weak PBT.
Compared with our estimates, sales and PAT (due to a lower-than-expected tax rate) were in line while PBT was behind by -21% due to a negative surprise on the net finance cost line. On an annualised basis, sales are tracking ahead by 10% while PBT is on track to meeting consensus’ FY 2018 PBT estimate of N6.7bn
We attribute the strong sales growth to the favorable market International Breweries operates in – the value segment. Owing to the persistent macroeconomic challenges, consumers have been downtrading to cheaper brands.
We suspect the company will continue to benefit from this product shift in the market when it concludes its acquisition of the other two Nigerian AB InBev indirect subsidiaries – Pabod Breweries and Intafact Breweries – which also operate in the value segment.
Management has not officially released a timeline for the acquisition; as such, we await their guidance on this. Year to date, International Breweries shares have gained 84% compared with 37% returned by the NSEASI.
We rate International Breweries shares Neutral. Our estimates are under review.
International Breweries Q1 2018 (end-Jun) results: actual vs. FBNQuest Research estimates (N millions)
| Q1 2018 | |||||
| Actual | Y/y | Q/q | FBNQuest est. | Act. vs FBNQuest est. | |
| Sales | 9,435 | 37.3% | -5.4% | 9,623 | -2.0% |
| Cost of sales | -5,143 | 48.5% | -9.6% | -5,197 | -1.0% |
| Gross profit | 4,292 | 25.9% | 0.2% | 4,427 | -3.0% |
| -gross margin | 45.5% | -411bps | 253bps | 46.0% | -51bps |
| Operating expenses | -1,986 | 14.9% | 19.9% | -2,117 | -6.2% |
| Other operating income | 0 | n/a | -99.7% | 10 | -97.6% |
| Operating profit | 2,306 | 43.7% | -15.3% | 2,320 | -0.6% |
| Net int. and similar chgs | -769 | -73.4% | 33.4% | -430 | 78.8% |
| PBT (before losses) | 1,537 | n/a | -28.4% | 1,890 | -18.6% |
| Other gains/losses | -38 | n/a | n/a | 0 | n/a |
| PBT | 1,499 | n/a | -36.8% | 1,890 | -20.7% |
| -PBT margin | 15.9% | 3455bps | -789bps | 19.6% | -375bps |
| Tax | -138 | -63.2% | -85% | -567 | -75.7% |
| Tax rate | 9.2% | 3833bps | -2877bps | 30% | -2082bps |
| PAT | 1,361 | n/a | -7.5% | 1,323 | 2.9% |
| -PAT margin | 14.4% | 3854bps | -33bps | 14% | 68bps |
Source: NSE; FBNQuest Estimates
